Is the current U.S. fiat economy sustainable?
Debt backed by debt backed by debt......

The answer to the question posed in the title of this thread is both simple and complex. The simple answer is "no". The complex answer speaks to why the simple answer is no - and people have written books on it. I'm a simple guy, I'll stick to "no".

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As for tv, screw it. You aren't missing anything. -- Ken Berg
I have come to realise it is futile to expect or hope a regular club game will be run in accordance with the laws. -- Jillybean

There is absolutely no safe store of value since confiscation of wealth through inflation is the fiat debt money trap.

The "Gold bugs" also insist that the quantity of mined gold has historically kept up with inflation and, as such, would provide a realistic form of currency. The number of humans has, however, somewhat increased in the interim and the per capita gold would severely limit commercial activity unless gold would be quite a large value per unit.

Money, in reality, represents the value of human capital. How much work, of value, that you can perform in a unit time. Any currency based upon that metric might well have a chance of success.

The "Gold bugs" also insist that the quantity of mined gold has historically kept up with inflation and, as such, would provide a realistic form of currency. The number of humans has, however, somewhat increased in the interim and the per capita gold would severely limit commercial activity unless gold would be quite a large value per unit.

Money, in reality, represents the value of human capital. How much work, of value, that you can perform in a unit time. Any currency based upon that metric might well have a chance of success.

Sigh....you always give me something to think about and your analysis is spot-on. Very cogent observation.

I'm surprised I missed this article earlier, but the rise of the BRICS loan facility plus the internationalization of the renminbi are tell-tale signs we should NOT miss. But then again, Harvard University has a thing or two to say about the winds of change. . .

Empires follow arcs that have many common elements. Militarism, internal oppression, information control and currency debasement. The US is right there and the (supposed) barbarians are at the gate. Plunder and the accumulation of treasure has many faces, including the current debt-based economy and the existence of a creditor (China) who will play the game until they are ready to supplant the US as #1 world superpower.

Empires follow arcs that have many common elements. Militarism, internal oppression, information control and currency debasement. The US is right there and the (supposed) barbarians are at the gate. Plunder and the accumulation of treasure has many faces, including the current debt-based economy and the existence of a creditor (China) who will play the game until they are ready to supplant the US as #1 world superpower.

It's fair to argue that the Federal Reserve's efforts to limit the impact of economic crisis could have unforeseen long-term effects, based on the additional money that has been put in circulation, versus a gold or silver standard that limits how much money circulates. The problem gets back to times of major economic crisis: When governments need tools to stop or reduce the harm, a commodity standard has historically had the opposite effect as people hoard it.

By severing the tie between a commodity that people tend to hoard in times of crisis and the value and supply of money, a fiat currency is a better alternative, but only so long as those pulling the levers of monetary supply keep the balance between supply and demand stable.

Here's the bottom line: Currency is a tool of trade. People tend to hoard gold and silver when things are uncertain, and that's harmful when it limits currency flows on a large scale. Removing the relationship between a currency and commodity doesn't create "worthless money."

It simply keeps panic from causing greater economic harm in times of crisis when people hoard the underpinning of a commodity currency and stop the wheels of commerce. And that makes a fiat currency far better than a gold standard.

But it's important to have rational people at the fed.

The growth of wisdom may be gauged exactly by the diminution of ill temper. — Friedrich Nietzsche
The infliction of cruelty with a good conscience is a delight to moralists — that is why they invented hell. — Bertrand Russell

Foxes guarding the chicken coop, you mean? The day that interest is only charged on REAL reserves (deposits, precious metals etc) and the currency is based on some tangible item (GDP, whatever...) will mean that debt is a choice and not a condition.

The day that interest is only charged on REAL reserves (deposits, precious metals etc) and the currency is based on some tangible item (GDP, whatever...) will mean that debt is a choice and not a condition.

Have you been forced into debt against your will? Sad.

The growth of wisdom may be gauged exactly by the diminution of ill temper. — Friedrich Nietzsche
The infliction of cruelty with a good conscience is a delight to moralists — that is why they invented hell. — Bertrand Russell

Every time we (yes, you too) spend a dollar, debt is created whether we like it or not. I worked a lifetime to become personally debt-free and am enjoying my retirement but I am loathe to see my sons under even greater economic pressure.

Every time we (yes, you too) spend a dollar, debt is created whether we like it or not. I worked a lifetime to become personally debt-free and am enjoying my retirement but I am loathe to see my sons under even greater economic pressure.

When you say that you are "personally debt-free" you are using the word "debt" the way I do: You haven't borrowed money that you must repay, and you have no associated interest payments. But when we spend dollars, we receive goods or services in return. Nothing is borrowed and no repayment is required.

So you've used a non-standard definition of "debt" in your first sentence, making it impossible for me to follow your reasoning. If debt is not a choice, how are you now debt-free?

The growth of wisdom may be gauged exactly by the diminution of ill temper. — Friedrich Nietzsche
The infliction of cruelty with a good conscience is a delight to moralists — that is why they invented hell. — Bertrand Russell

When you say that you are "personally debt-free" you are using the word "debt" the way I do: You haven't borrowed money that you must repay, and you have no associated interest payments. But when we spend dollars, we receive goods or services in return. Nothing is borrowed and no repayment is required.

So you've used a non-standard definition of "debt" in your first sentence, making it impossible for me to follow your reasoning. If debt is not a choice, how are you now debt-free?

Same as you. No outstanding obligations (all "borrowed" funds repaid) and my self-directed pension is independant of the government one (which mostly goes back to them in "income" tax...).

We all have the same obligation regarding debt-creation when we use the current, fiat monetary system that relies on fractional-reserve banking. That is a standard definition.

Dozens of banks received the biggest signal yet that they may soon be freed from some of the most onerous rules put in place after the financial crisis, as lawmakers from both parties agreed to a plan that would enact sweeping changes to current law.

The bipartisan Senate agreement released Monday would relieve small and regional lenders from a number of restrictions meant to limit the damage firms could cause to the economy in the event of another crisis.

In what would be the biggest step to ease the financial rule book since Republicans took control of Washington, the proposal could cut to 12 from 38 the number of banks subject to heightened Federal Reserve oversight by raising a key regulatory threshold to $250 billion in assets from $50 billion. The legislation also would ease red tape affecting credit unions and community banks, allowing them to lend more, supporters said.

The deal will “significantly improve our financial regulatory framework and foster economic growth by right-sizing regulation,” said Senate Banking Committee Chairman Michael Crapo (R., Idaho), who brokered the agreement between Republicans and a group of moderate Democrats.

Monday’s deal shows Republicans’ determination to ease regulations that they say constrain U.S. economic growth by limiting the capacity of banks and other businesses to serve customers and hire new workers. While it isn’t clear that any rule reduction will bolster the economy, efforts to scale back the 2010 Dodd Frank financial overhaul law and other policies amount to a bet that a freer environment will pave the way for increases in investment, spending and hiring.

Analysts said it isn’t clear that lending would actually increase, given that demand for commercial loans this year has been weak. But banks that had been avoiding mergers, such as those that didn’t want to go over the $50 billion line, could be more inclined to deal-making, said Brian Klock, an analyst at Keefe, Bruyette & Woods.

The deal could dramatically lighten the regulatory burden on a wide swath of banks from Utah’s Zions Bancorp oration to M&T Bank Corp. in Buffalo, N.Y. Those banks in recent years have had to submit to detailed financial and risk exams in order to pay dividends to shareholders.

Many banks bristled at this annual “stress test” review done by the Federal Reserve, and some including Zions, Citizens Financial Group Inc., BB&T Corp. and SunTrust Banks Inc., failed the Fed’s annual test previously. The bill would lighten their stress-test load.

For stress tests alone, building a system to meet the Fed’s expectations could cost firms tens of millions of dollars or more. Liquidity rules governing banks’ cash holdings are another expensive regulatory exercise that the legislation could allow the Fed to ease.

Regional banks have said their smaller size and lack of interconnected trading businesses makes it unlikely that their demise could create systemic risk that would threaten the economy as Lehman Brothers’ failure did in 2008. Their critics say regional banks can be risky, pointing to the 2008 failure of IndyMac Bank.

The deal marks a setback for regional banks with assets above $250 billion, including U.S. Bancorp and PNC Financial Services Group Inc., which have urged policy makers to do away with asset-size thresholds altogether. They favor allowing regulators to apply rules based on their own judgment of firms’ riskiness.

“$50 billion? $250 billion? Why is that number any better than another?” U.S. Bancorp’s chief financial officer Terry Dolan said in an October interview. His firm has about $459 billion in assets.

PNC said in a statement Monday it was disappointed in lawmakers’ proposal. “As a Main Street Bank, PNC’s business model and risk profile are very similar to that of other regional banks, and very different from the systemically important Wall Street banks,” it said.

Monday’s deal is co-sponsored by nine Republicans, including Tim Scott of South Carolina and Bob Corker of Tennessee, along with nine Democrats, including Joe Donnelly of Indiana and Heidi Heitkamp of North Dakota. That is enough to clear both the banking panel and the full Senate, assuming all Republicans in the chamber support the bill.

In brokering the deal, Mr. Crapo left off key Republican goals such as attacking the Volcker rule, a ban on proprietary trading.

“This is the first proposal that has a legitimate shot at making it to the president’s desk,” said Milan Dalal, an attorney at lobbying firm Brownstein Hyatt Farber Schreck in Washington and a former aide to Sen. Mark Warner (D., Va.), who backed Monday’s deal.

Republicans hold just 52 seats in the Senate and generally need support from at least eight Democrats for legislation to pass a needed 60-vote threshold. The House, also controlled by Republicans, would need to act for the plan to clear Congress.

Liberal Senate Democrats, including Ohio Sen. Sherrod Brown, the top Democrat on the banking panel, attacked the legislation, saying it would do little to help “working families.”

Negotiations between Messrs. Brown and Crapo on a similar regulatory rollback broke down last month, prompting Mr. Crapo to seek a deal with moderate Democrats.

Mr. Crapo released a summary of the legislation Monday, without unveiling its text. It appears to send a message that Congress wants regulators to lighten the burden, though regulators still have broad authority to apply tough rules to banks they view as risky.

Regulators could immediately exempt firms with assets between $50 billion and $100 billion from stress tests and other rules that were mandatory under Dodd Frank, according to the summary of the legislation. Banks with between $100 billion and $250 billion in assets could get that treatment after 18 months, though the Fed could exempt them earlier. Banks in the latter group would still have to take periodic stress tests.

Presumably, banks that are no longer subject to stress-testing and other rules would be able to slash their costs, but Evercore ISI analyst John Pancari said he wasn’t sure if looser regulation would actually materialize into cost savings. “A lot of the banks view much of the cost that they’ve spent on that as sunk costs,” Mr. Pancari said. “So, for example, if they spent money on the robust monitoring of their risks, they are probably going to keep up what they built.”

The effect on each bank would depend on how close it is to the $250 billion threshold, Mr. Pancari said.

The legislation also is expected to include dozens of other provisions, some of which have been previously floated or discussed by lawmakers.

One targets credit bureaus in the wake of the hack of Equifax Inc., according to the summary. It would require credit bureaus to freeze and unfreeze consumers’ credit for free once a year.

Very scary that this news was somewhat buried in the mass media news cycle. We are frogs slowly simmering in a soon-to-be boiling pot. We are embracing the financial "deregulatory environment" that led to the housing bubble collapse in 2008.

The "Gold bugs" also insist that the quantity of mined gold has historically kept up with inflation and, as such, would provide a realistic form of currency. The number of humans has, however, somewhat increased in the interim and the per capita gold would severely limit commercial activity unless gold would be quite a large value per unit.

Money, in reality, represents the value of human capital. How much work, of value, that you can perform in a unit time. Any currency based upon that metric might well have a chance of success.

The very astute J.P. Morgan who loaned huge sums of money to the U.S. government during the Great Depression said, "Gold is money and nothing else."

That being said, gold is money and all else are derivatives. Ever since we left the gold standard our U.S. dollar is a derivative product. I know, blasphemous, right?

Our money (fiat currency) is subject to heavy manipulation as can be seen with the central bank's balance sheet which exploded by $3 trillion extra dollars since the Wall Street collapse. Inflation confiscates our wealth and robs us of necessary purchasing power. Inflation depreciates the value of fiat currency and thus depreciates the value of our human capital in the labor market which is measured in $ of unit time.

If inflation gets too high and people start to catch on to the shenanigans behind the curtain in Financial Oz, our government just changes the components of the CPI index or makes a call on the red phone to its partner in Saudi Arabia to request an increase in the market supply of OPEC oil which will eventually lower the retail price of gas at the pump. This measure keeps the illusion that inflation is low and all financial systems are 'GO'.

GO FILL UP YOUR CAR WITH DECENTLY PRICED GAS, GO TO WORK, AND MAKE THOSE DONUTS! Take another trip around the VIRTUAL MONOPOLY board and pass 'GO' and collect the standard $200 salary. Our global economy demands unquestioned loyalty and nothing else of its disposable human containers.

Our fiat currency meant more when it was actually backed by physical gold reserves but we left that reality long ago.

We exist in a VIRTUAL financial world with a VIRTUAL banking system with VIRTUAL capital markets and a VIRTUAL credit system. Our financial systems now engage in unsavory business practices rife with VIRTUAL TRUST, VIRTUAL INTEGRITY, VIRTUAL GOOD FAITH, and VIRTUAL CHARACTER.

Problem is: Too many of the venerated financial institutions have forsaken what little VIRTUES they had to protect the value of their brand in the market. Unfortunately, unbridled greed and hubris have become the bottom line. Disciplined corporate governance is now a comedic punch line. Their folly is published as tabloid fodder in newspaper headlines.

OUR PARADOX: Our big banks are too big to fail; never too big to fleece others; and never too big for a video game RESET when their gross professional misconduct destroys their ability to continue as a going concern.

With the housing bubble collapse, our nation traded our financial credibility for creature comforts and the false disguise of prosperity and status. Our global neighbors watched our folly as we manipulated other governments and played a highly sophisticated game of smoke and mirrors to keep this financial machine operating and to keep appearances.

They questioned our intellectual honesty, our maturity of judgment, and our moral courage to do the right thing especially when the stakes are high and the consequences are unpleasant. Do we have the resolve to reveal our character flaws and our humanity?

There's a glitch in the financial matrix; we are seeing more anomalies of the programming code each year. Are we going to recognize the red flags and do something about them or stay cocooned in our false economy and wait for the next asset bubble to burst.

Are we going to wait for Uncle Sam to throw another T.A.R.P. over the next financial debacle in our overheated capital markets and play us for sitting ducks again?

We always have the gift of choice and the gift of voice as long as our hearts and minds are alive and well. The question is do we have the moral courage to do what's best for our children now so they don't wake up in a land wholly owned by faceless corporations and manipulative governments.

Doesn't the State Bank of North Dakota operate as a (pretty much) S&L? The idea of a bank NOT using fractional reserves to control money creation and flow and allowing elected reps to determine the cash required to "run" the economy (acceptable unemployment rate, wage inflation, economic activity) rather than the foxes in the henhouse counting the chickens....

Putting financial speculation in the casinos where it belongs would also help.

No corporation should be too big to fail and any size is too big to subsidize. Free enterprise should be free of socialized financing and privatized profit.

Doesn't the State Bank of North Dakota operate as a (pretty much) S&L? The idea of a bank NOT using fractional reserves to control money creation and flow and allowing elected reps to determine the cash required to "run" the economy (acceptable unemployment rate, wage inflation, economic activity) rather than the foxes in the henhouse counting the chickens....

Putting financial speculation in the casinos where it belongs would also help.

No corporation should be too big to fail and any size is too big to subsidize. Free enterprise should be free of socialized financing and privatized profit.

Same as you. No outstanding obligations (all "borrowed" funds repaid) and my self-directed pension is independant of the government one (which mostly goes back to them in "income" tax...).

We all have the same obligation regarding debt-creation when we use the current, fiat monetary system that relies on fractional-reserve banking. That is a standard definition.

There really isn't any debt created.

It's similar to money laundering where a business lends to a second business but both have the same owner. One business shows a minus on its ledger while the other shows a plus but the net result to the owner is zero. Banks are part of the federal reserve system. The net in fractional reserve creation is zero - it is an accounting measure to respond to demand.

As long as demand is the cause of money creation there is no problem. When the basic laws of supply and demand are tampered with - as in the run-up to the housing collapse where demand was falsely created - then there is a problem with excess money creation having been deposited in depreciating assets. The net between the Federal Reserve and the banks gets out of whack.

This post sponsored by: All County Building Supply & Maintenance, Felo, NY.Without truth it is impossible to speak truth to power, so there is only power.

1. If I have to study the operation/structure of the State Bank of North Dakota before I can have an intelligent opinion on banking regulation then just leave me out of the discussion. I have known several people from ND, I have been in Fargo, but I know absolutely nothing about their state bank. I will go out on a limb and suggest that my ignorance is shared by at least 99% of the US population. For that matter, it is probably shared by a large fraction of the North Dakota population.

2. We cannot confine financial speculation to casinos. If a bank, or anyone, makes a loan it is engaged in financial speculation. This speculation can be limited and regulated, but pretty much anything dome with money involves speculation.I just had the floor of my garage redone. I am speculating that it was worth the not small sum of money. I find stock market reports boring and I have only a vague idea of what stocks I own, but I have some. Not a lot, but some. That's speculation.And for that matter, so is burying cash in the backyard.Buying a house is speculation. So is renting.

3. We who do not know much, and do not intend to become experts in any form of finance, still have to vote, still have to invest, still have to make choices. How to do that? I choose partly on what strikes me as likely based on history as I understand it, and partly through a judgment about people, again largely based on experience either direct or indirect. I'll give a metaphorical, but actual, example of the latter. I was helping in the search to buy a house. We were standing in the uncarpeted living room and I mentioned to the guy showing us the house that the ad said wall to wall carpeting. He didn't see any problem with this. There were other reasons not to buy the house, and any ad can be in error, but I saw this "so what" attitude as a reason to have nothing further to do with that salesman. It will surprise no one to hear that I often think of that guy when I hear our current president speak.

4. I am not sure I could accurately quote any banking regulation that was introduced after the 2008 crisis. Dodd-Frank regulates speculation. Somehow. I more-or-less know something, but very little. I strongly suspect that some regulation is needed and I am pretty willing to believe that regulations also have a downside. So some wisdom is needed. I do not have much trust in the folks doing it. Again let's look at our president. He made a lot of money. How much? Who knows? And who knows just how, in any detail? But part of it surely was to take some substantial risks, pocket the cash with the successes, and use the bankruptcy laws to leave someone else holding the bad for the failures. Not my preferred way of life but I imagine a guy can get rich if he is clever enough at it.There were a lot of people holding the bag after the 2008 collapse. Some care is needed and we cannot expect those who think speculation is fun to be watching out for the rest of us.

Anyway, this is how I approach such matters and I strongly believe it is how most people do. I don't think it could be otherwise.